Steel Safeguards: The First Test of Canada’s Membership in the Alliance for Multilateralism

Source: Trade Law
Link: Steel Safeguards: The First Test of Canada’s Membership in the Alliance for Multilateralism

The Government’s response to the Canadian International Trade Tribunal’s (“CITT”) decision in Steel Safeguards will be Canada’s first test as a new member of the France – Germany coalition to support international cooperation and a rules-based world trading system.  Will Canada support international trade rules or will it give in to pressure from the Canada Steel Producers Association (“CSPA”) and impose safeguard measures on imported steel products in violation of those rules?

On April 3, 2019, the CITT concluded its safeguard inquiry into seven steel products, finding that imports of heavy plate and stainless steel wire caused serious injury to domestic producers while concrete reinforcing bar, energy tubular products, hot-rolled steel, pre-painted steel and wire rod did not.  Based on those findings, the CITT recommended that the Minister of Finance impose safeguard measures on imports of heavy plate and stainless steel wire, but declined to make any remedy recommendation for the other products.   The Minister is now considering the CITT’s recommendations on heavy plate and stainless steel wire and has indicated that the provisional safeguard measures currently imposed on the remaining products will be lifted on April 28, 2019 and any surtaxes that have been paid will be returned.

Safeguards is a mechanism used to protect domestic producers from a surge in imports of fairly-traded goods from all sources.  Permanent safeguard measures can only be imposed following a CITT inquiry that finds that goods were being imported into Canada in increased quantities and under conditions that cause or threaten to cause serious injury to domestic producers of like or directly competitive goods.  If the CITT finds serious injury, it can recommend that the Minister impose safeguard measures, in the form of a surtax, an import restriction or both, to restrict imports.  The CITT’s recommendation is non-binding; the Minister can ignore, impose or amend the CITT’s recommendation as he sees fit in the circumstances.  However, the CITT’s no injury finding is binding; the Minister cannot ignore a no injury finding and impose safeguard measures regardless without violating Canadian and international law.

Since the CITT concluded its inquiry, the CSPA has lobbied the Canadian government asking that it impose safeguard measures on all seven steel products considered in the safeguard inquiry regardless of the CITT’s decision.  The CSPA has argued that submitted substantial evidence to establish that its members suffered serious injury so the Minister of Finance can apply safeguards to protect those producers.  The CSPA also claims that the CITT should have supported the Minister’s earlier decision to impose provisional safeguard measures.  More recently, the CSPA has argued that, even if imposing safeguards wasn’t strictly legal, the U.S. Administration’s Section 232 duties on steel have so dramatically changed the global trade playbook that the Minister has to ignore legal niceties and respond aggressively to protect the domestic industry.

None of these claims are valid.  The CITT conducted an extensive inquiry and found no serious injury or threat of serious injury had been caused by imports of concrete reinforcing bar, energy tubular products, hot-rolled steel, pre-painted steel and wire rod.  There were 119 participants in the CITT’s inquiry including producers, importers, trade unions and governments.  Over 38,000 pages of evidence were submitted to the CITT.  The CITT held public hearings in Ottawa over approximately two weeks, during which it heard from 44 witnesses.  The CITT even allowed the domestic producers to file evidence concerning the third quarter of 2018, which fell outside the January 1, 2015 to June 30, 2018 period of inquiry.  This was the most extensive inquiry conducted by the CITT since the 2001 Steel Safeguard Inquiry.

The CITT reviewed the domestic producer evidence submitted in support of imposing safeguard measures, but in each case it came up short.  In Energy Tubular Products, for example, the CITT found a significant increase in subject imports during the period of inquiry but concluded that those imports did not cause or threaten serious injury to the domestic producers.  Instead, the CITT found that to the extent that the domestic producers suffered any injury, that injury was largely self-inflicted[1] and came in the form of imports by Tenaris from its Mexican sister company TAMSA that offset domestic production of Energy Tubular Products in Canada and in the form of an aggressive sales strategy adopted by some domestic producers.[2]   In Wire Rod, the CITT found no significant increase in imports and, thus, no basis for an injury finding, but, for completeness, the CITT reviewed the injury evidence and that it showed that the domestic producer performance changed little during the period of inquiry.  The CITT also found that the industry’s confidential financial data indicated an increase in profitability over the period of inquiry and that in oral argument the domestic producer Ivaco Rolling Mills focused on threat of injury and “appeared to acknowledge” that the financial performance indicators cannot support a serious injury finding.[3]  On threat of serious injury, the CITT concluded that the domestic producer’s arguments were speculative and based on conjecture rather than on the positive evidence required.[4]   In both cases, the CITT found no injury because the evidence submitted by the domestic producers did not establish serious injury caused or threatened by a significant increase in imports.

The application of safeguard measures by WTO Members is subject to the obligations set out in the WTO Agreement on Safeguards.  The obligations that apply in this case are clear.  Articles 2(1) and 3(1) provide that a Member may only impose safeguard measures on imported goods if an inquiry conducted by a competent authority (the CITT for Canada) concludes that the imported goods at issue are being imported in increased quantities and under such conditions as to cause or threaten to cause serious injury.  Thus, the Minister cannot impose safeguard measures against non-injurious imports without violating these obligations.  Article 5(1) of the Safeguards Agreement further provides that a Member may only maintain a safeguard measure against imported goods to the extent necessary to prevent or remedy serious injury.  Thus, the Minister cannot impose safeguard measures against imports that no longer cause injury.  Given the CITT’s no-injury findings, a decision to impose safeguard measures on any of these imported goods would clearly be maintained in violation of Article 5(1).

Thus, the CSPA is asking the Minister of Finance to violate the WTO just as Canada is joining France, Germany and Japan in a coalition to support WTO rules.   Canada joined the French-German coalition because the Canadian economy benefits from the rules-based international trading system.  The Minister should consider the message that imposing safeguard measures that violate WTO obligations would send its coalition partners and to those countries that the coalition is trying to influence to support international trade.  Rather than violate the WTO, the Minister should reject the CSPA’s request for additional protection and act in a manner that benefits Canada by supporting the international trading system.

Gordon LaFortune
April 26, 2019

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[1]              Safeguard Inquiry into the Importation of Certain Steel Goods, Inquiry No. GC-2018-001, pages 85 and 90

[2]              Safeguard Inquiry into the Importation of Certain Steel Goods, Inquiry No. GC-2018-001, page 85

[3]              Safeguard Inquiry into the Importation of Certain Steel Goods, Inquiry No. GC-2018-001, pages 130 – 131

[4]              Safeguard Inquiry into the Importation of Certain Steel Goods, Inquiry No. GC-2018-001, page 132